DBRS Morningstar also confirmed the Issuer Rating and Senior Unsubordinated Debt rating of
KEY RATING CONSIDERATIONS
The trend change to Negative recognizes the ongoing uncertainty regarding future economic conditions resulting from the ongoing Coronavirus Disease (COVID-19) pandemic, including the risk arising from the very high current levels of unemployment and rapidly weakening economic conditions. While the Company is not expected to be impacted in any significant manner in the near term, as the anticipated increase in mortgage delinquencies will take some time to be processed and government actions are likely to ameliorate the immediate impact of the downturn, it is expected that the Company's claims and losses will increase in the next 12 to 18 months given expectations of negative economic growth in 2020 and very elevated unemployment levels through 2021. Adding to this stress is the high degree of uncertainty surrounding the length of the downturn and the nature of the eventual recovery, which could result in a much weaker outcome for the economy. Even though the outlook has deteriorated rapidly,
RATING DRIVERS
Given the Negative trend and the current economic conditions, an upgrade of the ratings is unlikely in the near term. The trend could return to Stable if the Company demonstrates its ability to navigate the ongoing economic crisis, while maintaining its high levels of regulatory capital. Conversely, a ratings downgrade could result if its capital adequacy deteriorates substantially, leading to a reduced buffer over regulatory capital requirements, or if there is a material deterioration in its loss ratios over an extended period of time that negatively impacts earnings.
RATING RATIONALE
In recent years,
Canadian mortgage insurers are highly regulated, with insurers subject to stringent underwriting criteria and minimum regulatory capital levels. The credit profile of the Company's average borrower is strong and is reflected in its loss ratios, which have been low for the past few years relative to the historical norm. As a monoline insurer, risk increases significantly during economic downturns, when economic growth prospects weaken and unemployment increases. Generally, mortgage default rates are closely linked to changes in unemployment. Given current expectations, claims are likely to rise markedly in 2020 and 2021, increasing the Company's loss ratios from their current low levels. Mitigating the impact of this stressed environment are the Company's prudent underwriting and comprehensive risk management practices, as well as any offsetting impacts from various programs that have been implemented to mitigate the impact of the coronavirus on the Canadian economy, including the allowance of mortgage deferrals by most lenders and the payment of the
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is Rating Mortgage Insurance Companies (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
Tel. +1 416 593-5577
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
17-Apr-20 Financial Strength Rating Trend Change AA Neg CA
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
17-Apr-20 Issuer Rating Trend Change A (high) Neg CA
17-Apr-20 Senior Unsubordinated Debt Trend Change A (high) Neg CA
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